Strike Out

But even though the PTO wasn't laughing, the decision in Tafas v. Dudas did bring grins to the faces of many business people and patent attorneys throughout the country. They were pleased that the Virginia Federal District Court struck down the PTO's new Claims and Continuations Rules.

Promulgated last year, these regulations limit the number of claims in a patent application as well as the number of times an application may be amended (for instance, to revise the claims or respond
to examiners' objections). Prior to these regulations, applicants were entitled to an unlimited number of claims and amendments.

The PTO said the new Claims and Continuations Rules were needed to speed up the process for obtaining patents and prevent many applicants from gaming the system to obtain overbroad patents. Critics said the regulations would cripple the ability of innovators to legally protect their inventions. Judge James C. Cacheris ruled the PTO did not have the power to enact these rules.

"The ruling was of fundamental importance for innovators all over the U.S. and the world," says Sherry Knowles, senior vice president and global head of corporate intellectual property for GlaxoSmithKline, which successfully sued to overturn the PTO regulations. "The decision was in support of innovation across all industries. It will allow them to obtain protection for the full scope of their inventions."

Not everyone is so sanguine. Tafas will help drug companies such as GlaxoSmithKline, but it will harm software and IT companies by exposing them to continued depredations from patent trolls, according to Matthew C. Schruers, senior counsel for the Computer & Communications Industry Association, which filed an amicus brief in the case.

More importantly, the ruling may eventually harm all users of the U.S. patent system because it effectively forbids the PTO from attempting meaningful improvements in the current troubled patent system. Tafas imposes a particularly constrained view of the agency's rulemaking power, which will prevent it from attempting any significant reforms, says John F. Duffy, who teaches patent and administrative law at George Washington University Law School in Washington, D.C.

PTO Power
The Patent Act authorizes the PTO to issue only procedural regulations governing proceedings before the agency. Cacheris held the new rules were substantive because they "constitute a drastic departure from the terms of the Patent Act as they are presently understood" and "alter the rights of applicants."

For instance, the Patent Act states an applicant can file "one or more claims" covering an invention and sets no limit on the number of claims that can be filed. The new rules, by contrast, limit an application to a maximum of five independent claims, unless the applicant performs work
that would otherwise be the responsibility of the PTO.

The applicant also must thoroughly search for prior art and explain in detail why each independent claim is patentable over the relevant prior art. (For a more complete discussion of the regulations, see "Patent Limitations," InsideCounsel, December 2007, p. 20.)

"Applicants must now undertake new substantive responsibilities if they wish to file more than five independent ... claims, which represents a significant departure from [the Patent Act's] rule of unlimited ... claims," Cacheris wrote. Such alterations of applicants' rights are substantive and thus beyond the PTO's authority, the judge ruled.

Winning Big
The ruling was a major victory for innovative drug companies and other businesses whose inventions take a long time to research and bring to market, because the new rules threatened the ability of these companies to protect their inventions.

A drug company, for instance, may spend more than 10 years bringing a new class of drugs from basic research to clinical trials, but the company has to file its patent applications early in the research process, long before it can know which specific drugs will be safe and effective. The only way the company can obtain exclusive rights in the final, proven drugs is to keep revising its patent applications as the testing process continues.

The new rules would have prevented companies from revising their applications as often as necessary, according to some experts. "The rules might have made it impossible to protect pharmaceutical inventions," says Scott E. Brient, a partner at Alston & Bird.

Some experts believe, however, that Tafas also benefits patent trolls because the rules would have made it harder for these companies to obtain dubiously broad patents. "Technology, software and Internet companies will continue to be victimized by strategic litigants who get patents by gaming the system," Schruers says.

Losing Out
The court's ruling is a huge loss for the PTO. It not only prevents the agency from implementing this particular attempt to reform the patent system, it seems to prohibit the agency from making any significant changes in the current patent application process.

"The court says existing patent practice is a statutory right that can't be curtailed," Duffy states. "So any significant attempts at reform can't be done through the [PTO's] rulemaking process."
If the agency can't make any meaningful administrative reforms, the real losers may be all the businesses that use the nation's patent system. They would be stuck with a system that many regard as too costly, too slow, too time consuming and too likely to issue dubious patents.
The PTO, however, hasn't given up yet. The agency has appealed Cacheris' decision to the Federal Circuit, and the PTO has a fair shot at winning, according to some legal experts.

For one thing, the judge's reasoning is debatable. "The [PTO's] rules here clearly have a procedural dimension," Duffy says. "To the extent the district court says the rules are substantive merely because they have an effect on applicants, that is at least pushing the envelope on the courts' prior rulings concerning the substance/procedure distinction."

The Federal Circuit, moreover, may be sympathetic to the PTO's motive for enacting the rules: to reduce the overwhelming backlog of patent applications and make the patent application faster and more efficient.

"The Federal Circuit is likely to look at the broader issues of the rules' effects on the patent system," Schruers says. "The PTO's position is stronger [on appeal] because they are responding to a crisis in the system--a crisis not just for the PTO, but for the IP system generally."